KUWAIT/DUBAI, Sept 29, (RTRS): Kingdom Holding and Bahrain Batelco’s $950 million offer for a 25 percent stake in Zain Saudi failed due to disagreements with the indebted Saudi telco’s banks, a senior source at seller Zain said. Zain Saudi’s lenders refused to transfer debt guarantees to the joint bidders, who were also only willing to inject $900 million into the Saudi operator, less than the minimum $1.5 billion requested, the source said on condition of anonymity. A $22 million termination fee will most likely be cancelled, the source said, because the reason for the deal’s collapse was outside the buyers’ and Zain’s control. Zain Saudi’s lenders include BNP Paribas, Credit Agricole, Citigroup and Saudi’s Al Rajhi Bank, the source added. Batelco and Kingdom, the investment vehicle of Saudi billionaire Prince Alwaleed bin Talal, had agreed in March to buy a quarter stake in the indebted affiliate of Kuwaiti group Zain.

Delays
Delays in due diligence had already put the deal in doubt.
“The consortium concluded that the terms and conditions as set out in its non-binding offer could not be met to its satisfaction,” Batelco and Kingdom said on Thursday.
Zain Saudi’s debt tops $5.5 billion, according to its first-quarter results, including a $2.6 billion Islamic murabaha facility that can be rolled over until August 2012 and was reported to be part-guaranteed by Zain.

Nearly a fifth of Zain Saudi’s debts are owed to the founding shareholders, including Zain, while it must also complete a capital restructuring to alleviate about $2.3 billion in accumulated losses.
“Zain Kuwait will remain committed to Zain Saudi, and it was suppose to inject about $700 million in the Saudi company...the condition is still valid, but the amount might change,” the source said.
“Zain injected further capital into its Saudi affiliate worth about $365 million,” said Marc Hammoud, Deutsche Bank telecoms analyst in Dubai.
“This was not included in Zain Saudi’s proposed capital restructuring that will convert the other shareholder loans into equity.
“Batelco and Kingdom didn’t want to assume the additional shareholder loans provided by Zain, which could not leave the company while still holding them.”
Saudi Arabia’s bourse is closed for the weekend. Zain’s shares closed 3.1 percent down on Thursday.
Yet the failed deal could be positive for Zain and its affiliate, Hammoud said, enabling Zain Saudi to complete its debt restructuring and then refinance the Murabaha facility.
“The timing (of the deal) was just wrong,” Hammoud added. “Zain could extract more value if it restructures its affiliate first and then waits another 12 to 18 months to show better operational and financial performance.”

Zain Saudi’s debts have left it struggling to compete.
Its share of the kingdom’s mobile subscribers fell to 16 percent in 2010 from 18 percent a year earlier, leaving it a distant third to Mobily and Saudi Telecom Co.
In September 2010, UAE operator Etisalat made a $12 billion takeover offer for Zain. With Etisalat already active in Saudi Arabia through affiliate Mobily, Zain needed to sell its Zain Saudi stake for this takeover to proceed and agreed the Batelco-Kingdom deal even after Etisalat withdrew its bid in March.
“You are going to see many deals put on hold. In most cases the current valuations are not distressed enough to offer bargains just yet,” said Hashem Montasser, managing partner at Frontlane Capital, a Dubai-based asset management firm.
“I am not surprised about Zain. It is a difficult environment for M&A.”